Big Insurers Are Uniting Behind R3’s Blockchain Tech
R3 has scored another win in the insurance sector, giving the startup a wide lead over other distributed ledger technology (DLT) providers in the sector.
Revealed exclusively to CoinDesk, the RiskBlock Alliance, whose members include such insurance heavyweights as Chubb, Marsh and Liberty Mutual, has decided to build its first set of use cases using R3’s Corda platform.
The news comes soon after B3i, the European reinsurance consortium, decided to switch from Hyperledger Fabric to Corda. With the addition of RiskBlock, R3 now counts all the major insurance blockchain consortia as Corda users, including the Insurwave marine insurance platform created by EY and Maersk as well as regional initiatives in India and Italy.
RiskBlock was officially launched in mid-2017 by The Institutes, an insurance research and education network, but the team behind the DLT consortium has spent at least two years testing enterprise blockchain solutions. Earlier this year, RiskBlock narrowed down its choices to a short list: Quorum (developed by JPMorgan Chase), Hyperledger Fabric, Corda, and Digital Asset.
“We went through an intense and laborious process and finally narrowed it down to two, which were Corda and Digital Asset,” Patrick Schmid, a vice president at RiskBlock, told CoinDesk, adding:
“It was a close race – and we haven’t worked out all the details yet – but we have decided on Corda and we are moving in that direction.”
RiskBlock was a founding member of the Ethereum Enterprise Alliance and much of the early work, including several proofs-of-concept, was done on a private version of ethereum, the world’s second-largest blockchain. However, the insurance consortium started to change course this year as it received input from member firms and also some of its potential partners.
Privacy – or, rather, the lack thereof in a system forked from a public network – was the dealbreaker for these companies, according to Schmid.
“What we learned from testing ethereum was that our members found huge value in the smart contracts, and found huge value in blockchain-enabled technology. But they were a little bit concerned about data segregation,” he said.
“Even with a private variant of ethereum, their concern really was around data being stored, even if it’s encrypted and hashed, on every node in the system.”
The new RiskBlock applications are proofs of insurance (with the goal of weeding out uninsured motorists); more efficient forms of data sharing when a policyholder first notifies an insurer it will be filing a claim; subrogation (think of when your auto insurance carrier pays you after an accident and then pursues the other driver’s carrier for reimbursement), with a focus on blockchain-based net settlement; and parametric insurance, which is paid out automatically when a triggering event such as a natural catastrophe occurs.
In terms of a timeline, Schmid said, “Everything is in progress now. We anticipate that we’ll have POI and First Notice of Loss fully complete and ready for member testing before the end of summer.”
Insurance and interoperability
Landing RiskBlock is another important validation for R3’s technology at a time when the bank-owned startup is rumored to be struggling financially. The company is set to release the commercial version of its enterprise software next week.
“Over the last few months we have seen several insurers migrate to Corda due to its enhanced privacy and scalability; information is shared on a bi-lateral or multi-lateral basis, meaning parties that are not involved in the transaction will not see it,” said Ryan Rugg, global head of insurance at R3.
“Corda gives insurers the ability to integrate and secure disparate data sources, whilst simultaneously ensuring transparency across an interconnected network of clients, brokers, insurers and other third parties,” he added.
In a sense, B3i’s switch from Hyperledger to Corda made fellow insurance consortium RiskBlock more likely to settle on the R3 platform as well, all else equal.
That’s because, according to Schmid, the potential to “make interoperability an immediate thing” was a big factor in the platform selection process at RiskBlock.
“One of the major catalysts for us to narrow our selection process down to ranking Corda at the top was that it’s potentially also going to be leveraged by European reinsurers in the B3i initiative and by the InsurWave initiative – and some other smaller initiatives,” he said.
B3i, founded by insurance giants Allianz, Aegon and Swiss Re, and supported by AIG and AIA, gave similar reasons as RiskBlock in explaining its switch from Hyperledger Fabric to Corda.
“After re-evaluating our criteria around data privacy, developer productivity and interoperability we concluded that Corda is a perfect fit for our insurance use cases and also for our future strategy for an insurance business network,” Markus Tradt, CTO at B3i, told CoinDesk.
Tradt said B3i’s vision goes far beyond single-purpose blockchain deployments for a specific use case and that his consortium is working with partners and third parties for application developments.
Hence, “interoperability is crucial for us,” he said, “To that end, we are actively pursuing collaboration or partnerships with other platforms and initiatives.”
Puzzle pieces image via Shutterstock.
Written by CoinDesk.com
Florida CFO Advocates Creation of State “Cryptocurrency Chief”
es Creation of Government Post Overseeing Crypto
Jimmy Patronis has issued a statement urging Florida’s lawmakers to create a new governmental post tasked with overseeing the state’s cryptocurrency industry.
The “Cryptocurrency Oversight Initiative” has received support from Florida Senate President-Designate Bill Galvano, who stated “ As technology continues to develop, our state needs to be both on the forefront of emerging trends and ahead of the game when it comes to protecting consumers from those who want to scam our residents. I applaud CFO Patronis for putting innovative proposals forward and will work with him on any forthcoming policy changes.”
Mr. Patronis said: “Florida can no longer remain on the sidelines when it comes to cryptocurrency. I have directed my office to create a position that will oversee how current securities and insurance laws apply to Initial Coin Offerings (ICOs) and cryptocurrencies as well as shape the future of these regulations in our state.”
“ICO and cryptocurrency companies based in Florida will also be required to register with the Office of Financial Regulation (OFR) under the supervision of the cryptocurrency chief. The new position will coordinate the efforts of OFR and Office of Insurance Regulation (OIR) regarding the development of policy, legislation, and regulation,” Mr. Patronis continued.
CFO Urges Florida to Develop “Comprehensive” Regulatory Response to Cryptocurrency
Mr. Patronis argues that Florida must develop a “comprehensive and balanced” regulatory framework, emphasizing the need to protect citizens from malicious actors seeking to utilize distributed ledger technology.
“We cannot allow the cryptocurrency industry to expand in Florida unfettered and unchecked with the potential for so many, including our large population of seniors, to be exploited. By taking an active, comprehensive and balanced approach, our state will provide an appropriate level of scrutiny for emerging digital asset technologies. It is absolutely essential that Florida create safeguards to protect our consumers from fraud,” said Mr. Patronis.
“The Alabama Securities Commission recently sent a cease and desist order to Platinum Coin from Miami to prohibit the company from issuing securities within Alabama. Other states have identified and are taking action against bad actors in the cryptocurrency industry. Florida must also protect our residents. […] The establishment of a cryptocurrency chief in the state will help protect Floridians from scams. Understanding the risks and benefits of this emerging industry will benefit Florida consumers. My goal is to keep pace with demand and not deter innovation while monitoring for fraudulent behavior and scams,” he added.
Among Blockchain-Friendly Jurisdictions, Malta Stands Out
Among the handful of blockchain-friendly jurisdictions around the globe, Malta stands out with perhaps the most forward-thinking regulatory agenda.
In a testament to its success, the European island state has attracted a couple dozen blockchain businesses, such as the crypto exchange Binance and our company, the equity fundraising platform Neufund. A recent study from Morgan Stanley shows that Malta has established itself as the No. 1 spot for crypto trading.
Malta has achieved this in part by removing regulatory uncertainty. Also, in contrast to other jurisdictions, Maltese legislators understand that blockchain is much more than just cryptocurrencies. And Malta is not simply being lenient to attract business, which could be said of Zug, Switzerland – whose loose interpretation of what constitutes a non-profit attracted many crypto companies, which fundraised in the name of the social good to skirt U.S. securities law.
Instead, Malta is writing laws for tomorrow’s economy rather than trying to impose yesterday’s rules upon it. Consider the unprecedented way it is legally recognizing smart contracts and DAOs.
Malta created a legal framework earlier this year which defines DAOs(Decentralized Autonomous Organizations) as a new type of legal entity called “Technology Arrangements.” Next to the newly passed Technology Arrangement Bill and the Virtual Currencies Bill there will be also a new regulatory body: the Digital Innovation Authority (MDIA). Because why should the MFSA (the Maltese equivalent of the U.S. Securities and Exchange Commission) oversee blockchain businesses if new competencies are needed?
Instead of giving out licenses, requirements for which were established decades ago, the MDIA will audit the code of smart contracts. And in some cases, the MDIA will determine whether a business is eligible to obtain a license or not solely on the basis of code.
It is also the MDIA which will be in charge of auditing the code of DAOs and granting them the title of a “Technology Arrangement.” One can think of a Technology Arrangement as something similar to a limited company. It is a legal architecture that grants a DAO rights and duties just as a registered company would. The major difference, however, is that a DAO runs without managerial supervision.
Such a legal arrangement has never existed before and thus sparks a lot of open questions. “The task wasn’t just limited to creating an artificial legal personality, we also had to analyse how the technology has come about and predict how it might evolve,” said Maltese fintech entrepreneur and blockchain expert Abdalla Kablan who has been advising the government and wrote parts of the legislation. He added:
“The idea was to get the public to become aware and understand that it may be beneficial to society as a whole to recognize that a technology arrangement could indeed operate better and more safely if it had a legal personality allowing it to take into consideration all the rights and remedies in case of financial or even ‘physical’ harm, to all those around it.”
Whether a business can get licensed by the MDIA is determined through the “financial service test.” The test looks at whether a financial product or business falls under the European MIFID framework. If not, then the MDIA is in charge of licensing a business and auditing code. The code is audited by external parties to avoid bottlenecks, since the country is expecting an influx of businesses applying for licenses with the MDIA.
Rights for robots
Beyond the crypto community, the law has some staggering implications for society: A scenario in which autonomous robots can potentially operate as legal personas.
Consider this: A DAO can do the same things a corporation can, but instead of shareholder resolutions or management actions, the decisions are made and executed by artificial intelligence and smart contracts.
Under the proposed statute, a Maltese DAO incorporated as a Technology Arrangement could, for example, buy real estate in another EU country, just like any other legal person. Furthermore, the DAO could tokenize some of its ownership as securities and sell them on decentralized exchanges to other DAOs, companies or investors made out of flesh and blood.
Suddenly, we would have a world where humans and software are both legal entities.
The moment the law was be enacted in June, a Maltese DAO could legally acquire land in all other 27 EU member states. Due to an EU treaty, member states are obliged to acknowledge the existence of legal entities or legal personas from other member states.
Meaning, for example, that Germany or France cannot forbid robots, AI, or software to grab some prime real estate or close any other business deal. Additionally, the Union cannot just wipe out legal personas from its member states.
A model for the EU
Stepping back, the European Union does not currently have a specific legal framework governing blockchain-related activities, but European regulators are inclined to get an EU-wide regulation out.
Malta’s sandbox serves as an example for these regulators in Europe and the rest of the world. The result of this adventure will most likely influence the decisions of EU lawmakers.
This raises an interesting question, however: Would Malta retain its status as the “blockchain island” once Brussels has adopted similar policies?
Definitely, we think. Beyond the law, the country is working on creating an entire blockchain ecosystem. This includes new programs and departments at universities, as well as co-working spaces aimed at blockchain companies.
The country is also thinking about reforming the banking sector to push for more crypto friendly banks for founders. Those moves cannot be easily copied by other regulators since such an ecosystem grows naturally and is more sustainable.
“Even the bravest projects, tech-related or not, require the right environment to grow bigger and stronger and we are determined to offer that environment in Malta,” said Silvio Schembri, the Maltese Junior Minister for Financial Services, Digital Economy and Innovation.
In conclusion, compared to other countries, Malta has solidly established itself as a blockchain hub (view this map in order to see and follow the status of other crypto-friendly jurisdictions around the world). But with its bold moves, Malta is kicking off an urgently needed European debate about how new technologies should be regulated.